While the Bitcoin-mining mindset formulated in China seeks to centralize computing power with any and all means at miners’ disposal, Western energy startups are working to burnish Bitcoin’s less-than-sterling reputation by reversing the status quo as the industry rapidly transitions to a substantial asset class now consuming 73 terawatt-hours per year, the equivalent of Austria. Innovators are quickly putting Bitcoin, formerly the realm of small-scale, unsophisticated operators, through its paces as an institutionalized, industrialized asset play that exists on its own merit – and for our collective benefit.
Through utilizing low-cost and stranded energy assets to secure the Bitcoin network, such as natural gas that would otherwise have been flared into the atmosphere, new startups like Iris Energy are institutionalizing the asset class and giving energy producers and miners a blueprint for a better compromise. Iris’ model reduces the Bitcoin network’s toll on non-renewable and public resources, and through its partner network is building a successful, decentralized, and low-carbon mining operation and data-center infrastructure spread across North America and Australia.
Wielding Bitcoin better
Run by two former Macquarie Bank executives, and traditional infrastructure and energy industry veterans Daniel Roberts and Will Roberts – the executive chairman and executive director, respectively – Iris’ team is replete with experts in project financing, renewable-energy project development, commodities, digital currencies and more. Daniel and Will together have decades of experience in the sectors most relevant in integrating energy systems with servicing the Bitcoin network and producing bandwidth for data infrastructure, with Daniel one of the founders and largest shareholders in Palisade Investment Partners – an Australian infrastructure funds management business with more than US$5.6 billion in assets under management – and his focus now turned to building an energy and technology infrastructure business capitalizing on the next global wave of growth in the sector.
With the goal to create an institutional-grade platform that is intuitive and sustainable, Iris’ executives bring the discipline and experience necessary to help this type of new architecture meet the needs of local stakeholders.
As investors increasingly seek promising opportunities in energy and technology infrastructure, Iris quietly raised US$10 million in 2019 from several high-profile angel investors, many either current or former industry executives themselves. Global alternatives fund manager Regal Funds Management also led the most recent funding in Iris, drawn by the attractive economics of its business model, strong governance and mature pipeline of data-center projects.
With Bitcoin mining an often misunderstood and asymmetric proposition for energy producers and infrastructure owners, the model is even more enticing: A lower Bitcoin price means high-cost miners bow out and let low-cost miners reap the rewards, while a higher price often takes time for competition to enter the arena delivering enhanced profits to incumbents.
Data boom brings Bitcoin into the picture
Data is hot for right now in general, with a Research and Markets report for 2019 expecting data-center demand to increase by up to 10 times by 2030. Investors have been quick to embrace the data-driven revenue models employed by Google and Facebook and remain focused on monetization opportunities associated with the proliferation of big data.
However, data does not exist in a vacuum, and there is a very real physical infrastructure that underpins it all. Despite the very digital nature of data, this infrastructure must be powered, and therein lies the challenge. These infrastructure requirements are becoming more evident: Australian data-center company AirTrunk alone raised more than US$630 million in 2019, and Goldman Sachs is now seeking bidders for a stake in the $2 billion business.
Make no mistake: Bitcoin has the same needs as other data products, but unlike others, its utility is financial and transactional. In terms of a growing decentralized financial data infrastructure, Bitcoin is king, and the way it and other data infrastructure exists with the energy industry must be symbiotic. The growth and evolution of both the energy sector and data technology are not going away and recent fundraising in the space only seems to be a sign of more to come; US$50 million invested by Peter Thiel into Layer1 and $70 million into Crusoe Energy Systems (including Bain Capital Ventures as an investor).
The backwards cost of crypto in China
China stands out as an enormous driver of the data boom and technological adoption, accounting for a significant portion of its taxing energy costs. The prevailing mentality has been to access the cheapest power resources despite their often-steep environmental toll in the name of affordability. Fortunately, just as new technologies have emerged to optimize computing hardware resources and data exchange, novel ways to monetize the abundance of untapped or underused Western energy sources is under exploration.
Given the rapidly expanding energy footprint pinned on our advancing digitization, it couldn’t come at a better time. The world was suddenly handed a new way to leverage computing resources for financial reward in 2008 with the Satoshi white paper, and a gold rush occurred that highlighted Bitcoin’s price tag in blinding fashion. Its cost on the grid was even more astonishing, and at a then-estimated 36 terawatt-hours in January of 2018, the Bitcoin network is now supported by 73TWh per year, the equivalent of Austria.
It was correctly assumed that most of this power was obtained unsustainably, if only because blockchain’s transparency lets us visualize where most of the mining power was concentrated: China. At a subsidized price of 4 US cents per kilowatt-hour, Chinese miners can pool together their CPUs (central processing units) to support the Bitcoin network and have used this strategy to together represent nearly 60% of its available power. Without regard for how energy is used for their Bitcoin, China’s appropriation of Bitcoin’s capacity and poor example are a detractor from progress.
Trends converge on Iris
A new exciting dynamic is making North America a new haven for cryptocurrency mining, all the while promoting a decentralizing effect on Bitcoin’s mining power – something that enthusiasts have long advocated. Typical to the upstart technology arena, it took sudden innovation and a new incentive model to change the way things are done, but now that these new business models and accompanying technologies have been introduced in a holistic, productive and corporate-ready way, Bitcoin’s purpose in our future is promising. Not that it was going away, the new brand of combined data-center-and-mining platform gives Bitcoin something else to point to in its growing contribution to the world.